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SEPA - The end of the beginning

Apr 16th 2015 |

Many companies have opted for a ‘compliance only’ project to meet the Single Euro Payments Area (Sepa) deadline – but once migration is complete, they can take fuller advantage of the new payments landscape.

For a number of years, treasurers have been hearing about the benefits that Sepa can bring to their organisations. In some cases, these benefits can extend to getting approval for payment transformation projects which may have been difficult to obtain in the past.

“While market research has showed a compelling case for payment and collection factories in increasing cash visibility, treasurers often struggle with the business case and lack the resources to carry out these types of project,” says Garry Young, director, CGI.

Young argues that it is easy to calculate the savings that a company can get from a head count reduction or by reducing the number of bank connections – but that it is more difficult to quantify the actual business gains that can be achieved by centralising a company’s payments. “The understating of the real business benefit, and the extended payback period as a result, has led to many projects not getting voted through at board level,” he says.

Nevertheless, Sepa has given companies the opportunity to get approval for these types of projects at a time when changes have to be made to the company’s payment processes for compliance reasons. “Forward thinking treasurers are being quite clever here,” Young says. “While they have got the attention of their IT departments, they can use Sepa to transform their payments landscape.”

Indeed, in many cases the companies that have taken a more proactive approach to Sepa have done so by including Sepa as part of a wider transformation project. Faurecia, an international manufacturer of automotive parts, has launched a global bank communication project with the goal of replacing several dozen proprietary e-banking portals with a single Swift-Net based tool. Baudouin Courau, VP financing & treasury at Faurecia says, “Transition to Sepa is for us a subset of this project.”

Dutch retail group Ahold has combined its Sepa migration project with a recent pan- European RFP for the company’s cash management structure. The company is looking to use the opportunities provided by Sepa and the widespread adoption of XML by European banks in order to introduce XML for its payments, which require less maintenance from the company’s point of view.

More than a finance project

George Dessing, VP, corporate treasurer of Wolters Kluwer, explains that the information services company regards Sepa as much more than a finance project. “We view it as a business project which affects the whole organisation. We have a lot of professional clients and customers who use our products daily, and those products will be affected by Sepa – so instead of only viewing Sepa as something that we need to do on the back office side, this also gives us further opportunities on the business side.”

Not all companies have approached Sepa strategically, however. The arrival of the migration end-date caught many off guard, and for companies which have started migrating relatively late in the day the focus has been very different. Rather than addressing Sepa in a way which will bring business benefits, they have focused on achieving compliance as quickly as possible, for example by using XML conversion services offered by third parties.

While this type of approach may be the only viable choice for companies in danger of missing the deadline, there are some risks involved. These companies will not gain the full benefits that Sepa has to offer – and in some cases may find that their processes are less efficient in February 2014 than they were before the migration took place.

“I think there’s a risk that some corporates will do a ‘make do and mend’ approach to Sepa,” says CGI’s Young. “They may get someone in who has read the Sepa rule-strengthbook to put in place an interim solution, but this could end up reducing the visibility that they have over cash and introduce extra risk into the operation. What companies need to avoid is putting in place another layer of complexity into their payment systems, only then to have to untangle the spaghetti after February 2014.”

These complexities can arise in a number of different ways. For example, interim solutions may require an integration layer in order to translate between legacy and Sepa processes on a country by country basis. The more systems that need to be connected, the greater the complexity will be. “The company runs the risk that the expert who put it in place subsequently leaves the business and no-one knows how to update or amend it,” says Young.

In addition, Young argues that it can be difficult to maintain a single version of the truth about the status of a mandate, for example, if data is being stored in and accessed from multiple systems. Another issue is that while some banks have said they will only provide CAMT 54 statement messages, others will continue to provide legacy messages, meaning that corporates will have to manage a number of different processes and conversions.

Second wave

A large number of companies may have settled on the compliance only approach to Sepa in the short term – but once the migration end date has passed, there will be an opportunity for these companies to revisit Sepa in order to smooth out any inefficiencies they may have inadvertently gained, and indeed to leverage some of the wider benefits that Sepa has to offer. There is likely to be a second wave of corporate Sepa projects as companies look to take advantage of the opportunities they may have missed the first time round.

Even companies which have approached Sepa as a strategic opportunity may continue to optimise their projects in 2014 and beyond. Dessing explains that Sepa migration is something that can further strengthen the company’s internal processes – and that this will not stop once the migration end date has passed.

“After 2014, Wolters Kluwer will be looking to engage further centralisation of its payment processes,” he says. “I would definitely see this as an opportunity to undertake more centralisation within Europe in the longer term.” For example, the company is currently exploring the possibility of setting up a centralised payment hub. In other cases, Sepa developments are not expected to materialise until after the February 2014 deadline has passed, such as the anticipated electronic mandate scheme. “The introduction of a Sepa eMandate scheme must be expedited,” says Thomas Wolpert, senior credit manager at Union Tank Eckstein (UTA). “There seems to be too little happening in this area.”

Benefits beyond the Sepa zone

These benefits may extend to countries and regions outside of the Sepa zone. Ahold, for example, is in the process of implementing XML for both Sepa and non-Sepa flows. Dmitry Bespalov, the company’s treasury manager, says that “in countries with currencies other than the euro, such as Switzerland or Czech Republic, the Eurozone legislation is pushing towards the use of XML for euro payments. I see the implementation of XML for non-Sepa payments as a foundation for the future migration which will also come. This will contribute to harmonisation in the area of payment formats and will subsequently simplify IT infrastructure and maintenance requirements. ”

Tatiana Nikitina, cash and banking analyst at British American Tobacco (BAT), believes that as companies become more accustomed to using XML in Europe they will increasingly begin to consider using the same format in other locations. “XML allows you to become more bank agnostic, because almost all banks accept XML, whereas it is much more difficult to build interfaces with the banks if you are using a local format,” she explains. “We definitely see this as an opportunity. We are planning to move from host-to-host connections to Swift, and XML is an enabler for us.”

She adds that Sepa will encourage more companies to think about payment factories and payments on behalf of (POBO) and receivables on behalf of (ROBO) models as more companies concentrate their payments on a single euro bank account. “I am not sure how quickly this will happen – for now the focus is on being compliant with Sepa,” she says. “Once that is sorted, companies will think about utilising Sepa and the opportunities it provides.”

Javier Santamaría, chair of the European Payments Council (EPC), says that Sepa is “a seed rather than a fruit”. He adds, “If companies reap benefits from harmonisation in Europe, they will realise there are gains elsewhere and they will start requesting further homogenisation from a more global perspective. This leads me to conclude that, if Sepa proves to be a success, other communities will become attracted to the idea of pushing further on harmonisation including adoption, for example, of the global ISO 20022 message standards and XML. Such a development could also be triggered by multinational companies, which would be the agents closer to recognising the benefits.”

That said, could something like Sepa be put in place in other regions? While pointing out that the EPC is not in a position to comment on developments in other regions, Santamaría adds, “I believe many actors in other markets are keeping a close eye on the Sepa initiative to determine whether the approach has something to offer to them.”

However, given that Sepa is a political initiative rather than a demand-driven process, he says that the question of whether there might be similar developments in other regions may depend “not only on user demand possibly triggered by actual benefits now materialising for payment service users in Sepa, but also on the approach adopted by the relevant political authorities.”

Benefits of SepaBy Javier Santamaría Chair of the European Payments Council

“Sepa benefits, first and foremost, bank customers including consumers, businesses and public administrations. Once Sepa is achieved, it will be possible to exchange euro payments between any accounts within Sepa as easily as it is within national borders today.

“The implementation of innovative and competitive Sepa payment services translates into efficiency gains for businesses and public administrations. Common standards, faster settlement and simplified processing will improve cash flow, reduce costs and facilitate access to new markets.

“Consumers can rely on a single set of euro payment instruments covering 33 countries: one bank account, one bank card, one Sepa Credit Transfer (SCT) and one Sepa Direct Debit (SDD). Moreover, customers will enjoy benefits resulting from increased competition in the payments market.”